Mid-Morning Look: April 26, 2019

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Mid-Morning Look

Friday, April 26, 2019

Index

Up/Down

%

Last

 

DJ Industrials

-8.51

0.03%

26,453

S&P 500

-0.96

0.03%

2,925

Nasdaq

-24.74

0.30%

8,093

Russell 2000

4.69

0.30%

1,580

 

 

U.S. equities slip to start the day, but down only slightly amid some profit taking in the technology sector following weakness in chip stocks. U.S. investors got an unexpectedly stronger Q1 GDP reading, as the economy grew 3.2%, well above the 2.3% economist estimate, helping bounce stock futures early. But markets have since seen an unwind of some of the biggest winners the last 2-weeks as the semiconductor index (SOX) is having its worst day since January after INTC miss and lower guidance (follows weak guidance from XLNX on Thursday), while oil prices tumble over 3% (no specific negative headlines) falling off 6-month highs, while the US dollar, which hit 52-week highs this week, is tumbling despite a much stronger than expected GDP reading this morning. Energy stocks a drag along with technology (only two sectors lower early) after Dow component XOM posted a big earnings related miss due to downstream declines. Transports mixed amid weakness in airlines after AAL lowered its earnings guidance for the full year, despite beating estimates in Q1 (follows weak results from UPS yesterday that hurt the sector). Markets will be watching headlines on trade with China next week in addition to another heavy corporate earnings calendar, as Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will lead a U.S. delegation to China next week to resume trade negotiations. The Federal Reserve is likely to view the U.S. first quarter GDP report quite positively, as growth is exceeding the Fed forecasts and there’s no sign of any recession on the horizon.

 

Treasuries, Currencies and Commodities

·     In currency markets, the U.S. dollar tumbles despite strong GDP reading and in-line Michigan sentiment reading; taking a breather after rising to 2-month highs vs. the euro this week; the low inflation readings keep market at bay on fears of interest rate hikes by the Fed; treasury prices climb as the 10-year yield falls under 2.50%

·     Commodity prices mixed as oil tumbles to lowest levels of the week, paring an eighth straight weekly advance, even as supplies stopped flowing through a major Russian pipeline to Europe. Some profit taking in riskier assets the last few days after stocks at all-time highs and oil 6-month highs, while gold prices rebound off 2019 lows to trade $1,285 an ounce.

 

Economic Data

·     GDP data very strong as U.S. Q1 advance GDP grew 3.2%, well above the 2.3% estimate (note GDP rose 2.2% in prior quarter). Data shows that about 1.68 percentage point of 1Q GDP increase attributed to inventories and net exports categories. Personal consumption rose 1.2% in 1Q after rising 2.5% prior quarter and GDP price index rose 0.9% in 1Q after rising 1.7% prior quarter. Core PCE q/q rose 1.3% in 1Q after rising 1.8% prior quarter, smallest increase since 2Q 2017

·     April Final Michigan Sentiment fell to 97.2 from 98.4 last month and below est. of 97 (was 96.9 in the preliminary reading); the expectations index fell to 87.4 vs. 88.8 last month and the current economic conditions index fell to 112.3 vs. 113.3 last month; long-term expected inflation tied with lowest recorded in half a century

 

 

Macro

Up/Down

Last

 

WTI Crude

-2.08

63.13

Brent

-2.27

72.08

Gold

9.35

1,286.50

EUR/USD

0.004

1.1172

JPY/USD

-0.17

111.46

10-Year Note

-0.024

2.496%

 

 

Sector Movers Today

·     Autos; Ford (F) a positive earnings surprise helped shares trade to their best levels since last Fall, tripped up slightly after saying it was contacted earlier in April by the Justice Department that a criminal investigation into concerns involving the company’s process for estimating road load; UBER sets its IPO at 180 million shares, with each marketed between $44 to $50, according to an amended filing; tire maker GT reported a Q1 adjusted profit that beat expectations, although sales fell short/also said it refinanced its European revolving credit facility; Auto dealer stocks weaker after AN Q1 EPS beat though revenue and comp sales both missed analysts’ estimates as it focused on new vehicle margins, but CEO says feels great about start to the year; SAH rises after Bank America upgraded shares; TSLA extends yesterday earnings losses, to 2-year lows; several auto suppliers also out with results today (LEA, ALV) after big VC miss yesterday – note LAD,  ABG,  GPI,  PAG,  SAH all reported strong numbers earlier this week in auto dealer space

·     Retailers; AMZN reported in-line revenue and operating income above consensus for Q1’19 while the mid-point of Q2 operating income guidance is well below consensus, on a revenue mid-point that is 1% below the Street – other important news item, announced a one-day Prime delivery (shares of TGT, WMT decline on the delivery news) – AWS remains the standout performer with growth +42% ex-FX &OI margin up 320bps y/y; COLM posted strong 1Q beat across metrics, also raised the FY19 outlook with the high end comfortably above consensus; in toys, MAT rallied as Q1 earnings results fared better than estimates as Q1 adjusted gross margin 38%, up 670 bps

·     Transports; Transports tumble for a second consecutive session, led by weakness in airlines after AAL lowered its earnings guidance for the full year, despite beating estimates in Q1 as now sees 2019 adjusted EPS of $4-$6 below prior view of $5.50-$7.50 as sees the BA 737 MAX cancellations, to impact its 2019 pre-tax earnings by about $350 million; ALK a bright spot, rising early on earnings results; the overall transport group declined yesterday on weak UPS results; FDX was downgraded to sell at UBS saying while investors may expect pressure in 4QF19, they believe EPS expectations for F2020 remain too high

·     Semiconductors; after touching all-time highs above the 1,600 level this week, the Philly semi index (SOX) pulls back on consecutive days, led by INTC which cut its 2019 revenue forecast, saying it was taking a “more cautious view,” as June-quarter sales and EPS guidance were below consensus estimates (follows weak guidance from XLNX Thursday, falling 16%); WDC cut by Baird to underperform citing an “increasing disconnect” between significant year-to-date appreciation and a continued deterioration in NAND flash fundamentals as highlighted by recent reports from Intel, Hynix, and Nidec; QRVO downgraded to sector weight at KeyBanc saying that the company has failed to be qualified in the new iPhone, despite having secured a design win

 

Stock GAINERS

·     AMZN +1%; reported in-line revenue and operating income above consensus for Q1’19 while the mid-point of Q2 operating income guidance is well below consensus – announced a one-day Prime delivery and AWS remains the standout performer with growth +42%

·     EHTH +4%; following its Q1 results topped estimates as revenue rose 60% to $68.8M, including a 78% jump in the Medicare segment to $30.8M and estimated membership was up 7% to 952,239

·     F +10%; Q1 adjusted EPS 44c/$37.2B vs. est. 26c/$36.99B; beat estimates as cost cuts and high-profit trucks offset losses in some overseas markets

·     GRUB +1%; Q1 EBITDA ahead of expectations as 1Q diner adds +159% y/y were meaningfully ahead of Street expectations while Q1 EPS/revs better (Q2 and year guidance was soft)

·     HELE +18%; after Q4 EPS and sales well above consensus at $1.82/$384.8M vs. $1.58/$363.3M

·     MAT +7%; Q1 earnings results fared better than estimates as Q1 adjusted gross margin 38%, up 670 bps and posted smaller than expected loss

·     PETX +36%; to be acquired by ELAN in a deal worth $245M, as PETX holders will receive 0.1481 shares of Elanco stock and one contingent value right of 25c https://on.mktw.net/2W6rW7n

·     PRO +14%; Q1 earnings report beat estimates, consensus, and guidance across key metrics, posting subscription revenue growth of +45% vs. guidance of +40%

 

Stock LAGGARDS

·     AAL -2%; lowered its earnings guidance for the full year, despite beating estimates in Q1 as now sees 2019 adjusted EPS of $4-$6 below prior view of $5.50-$7.50

·     BGG -17%; after slashing its year outlook (cuts FY19 EPS view to 45c-55c from $1.10-$1.30 (est. $1.04) and cuts FY19 revenue view to $1.86B-$1.91B from $1.90B-$1.96B)

·     INTC -9%; as June-quarter sales and EPS guidance were below consensus estimates, and the company lowered its full-year 2019 sales and EPS guidance

·     INTU -7%; dragged lower after the company provided an update that disappointed investors (KeyBanc noted consumer revenue growth guide to 10%, the high end of the earlier 9-10% forecast, yet below their 14% estimate)

·     TGT -5%; along with weakness in WMT after AMZN announced a one-day Prime delivery

·     UHS -4%; leading hospital stocks lower as 1Q results came in below expectations, amid weaker-than-expected 1Q adj. Ebitda due to a disappointing performance in acute care

·     WDC 6%; was double downgraded by Baird to underperform citing an “increasing disconnect” between significant year-to-date appreciation and a continued deterioration in NAND flash fundamentals as highlighted by recent reports from Intel, Hynix, and Nidec

·     XOM -2%; after posting a Q1 EPS miss (55c vs. est. 72c) saying hurt by weaker crude prices than Q4 as North American differentials narrowed and natural gas prices were hurt by warmer weather/1Q downstream loss $256M vs. profit $940.0M YoY

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Market commentary provided by Hammerstone Markets, a division The Hammerstone Group, a firm separate from and not affiliated with Regal Securities L.P. Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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